Fairfax has been swamped by E-L Financial's quiet, steady, winning gains

There’s nothing like a good headline to draw your attention.

Apparently, technology stocks such as Twitter (TWTR:Q) and Facebook (FB:Q) are highly valued, while Blackberry (BB:TSX) is “a good value investment and the firm’s performance will improve over time.”

This analysis is offered by Fairfax CEO Prem Watsa, who is long Blackberry and bought hedges last year on the stock market in anticipation of a major correction. The hedges haven’t paid off yet, wiping out gains the company made on stocks in 2013; I’m sure they might be coming in handy now, however. And Blackberry’s ongoing negative cash flow raises solvency concerns.

I must admit to not having spent any time following Fairfax prior to the firm taking positions in Torstar (see prior post “And then the bottom fell out on Torstar shares part 2” July 14-08) and Blackberry (see prior representative post “BlackBerry deal tests limits on M&A creativity” Sept. 24-13). There was always something else to chatter about. The Blackberry deal brought Fairfax a bit into focus, but again, that was about BBRY, not Fairfax.

But now that Mr. Watsa is comparing a profitable Facebook to the “dot com bubble” of 1999, when business plans were financed on the public markets, it seems timely to compare the 5, 10 and 20 year performance of Fairfax (FFH:TSX) to E-L Financial (ELF:TSX). The two entities are incredibly comparable, even if most of you have never heard of the latter:

– Both market caps are between $5-$10 billion
– Both are grounded in the insurance industry
– Both are run by very able executives, with tightly-knit Boards
– Both invest the firm’s surplus in stocks, bonds and other financial instruments
– Both are based in Toronto, Canada

There’s just one difference. One gets media attention, while the other avoids the limelight; and each is very good at their chosen path. But that’s not all, and it’s certainly not the most important distinction.

E-L Financial’s shareholders have done far, far better than Fairfax’s on a 5 and 20 year horizon. ELF is up more than 850% over a 20 year period, while Fairfax generated a return less than 600%. In fact, between 1999 and 2014, Fairfax shares are down about $100. Even the much-maligned Nasdaq market index has performed better (+75%) between January 1999 and today than Fairfax (down 20%). Remind me again who was talking investor “tears”?

Somehow, despite an irrefutable difference in the stock-picking and shareholder value creation talents of these impressive teams over a two decade span, it is Mr. Watsa who is compared to Warren Buffet. Not the Jackman family.

I’m sure that doesn’t bother them one bit. ELF has won the crown that matters: creating shareholder value.

MRM